How D&O Insurance Can Save Your Career

The journey to becoming a business leader isn’t easy—and as someone who is currently occupying the position, you’d know that better than anyone else. It took years of preparation, education, and experience to get where you are today. The sacrifices were worth it though, as it's an accomplishment with its own rewards. Of course, there are risks to any high-impact position, which is where Directors and Officers Insurance from Budget Insurance comes in. Keep reading to discover what role this vital protection plays in safeguarding your career accomplishments.  

Current trends in Directors and Officers Liability

Executive leaders (including company directors, senior managers, and other positions with significant responsibility) are in demand in South Africa, according to a recent survey that featured on BusinessTEch on what high-level skills local businesses are trying to attract and retain.

There are many reasons people who can fill these roles are sought after. One of the main reasons is that they take on the responsibility—and significant risk—of making decisions to steer a company towards success. Whether you're thinking of accepting such a position soon or already occupy a leadership role, you can help protect your career by being aware of common risks you might face:

1.        Regulatory and legal challenges

South Africa’s business landscape is young and has unique factors impacting it. Today’s leaders must navigate complex laws and regulations, including the Financial Intelligence Centre Act (FICA) and Broad-Based Black Economic Empowerment (B-BBEE) legislation. Then there are emerging Environmental, Social and Governance (ESG) reporting requirements that businesses will need to comply with soon. Potential errors and oversights—even accidental—in this area can be costly.

2.  Class actions

Developments like the implementation of the Consumer Protection Act have radically changed the regulatory environment for South African businesses. In the past, many companies avoided litigation cases and small claims initiated by individuals because the legal costs prevented the individuals from taking action. Now, groups are empowered to pursue class actions against businesses. When you consider that even small claims add up when many people make the claim, you see how class actions can be a major threat to businesses.

3.  Cyber security

Laws such as the Protection of Personal Information Act (POPIA) and General Data Protection Regulation (GDPR) have never been more important, especially with so many businesses managing and storing critical customer and client information online. A data breach can incur fines, disrupt operations, and challenge public faith in a business.

4. Impact of insolvencies and financial distress

Factors beyond your control can result in your business being unable to honour its debt. Should this happen, company leaders could face scrutiny, with shareholders, creditors, and other parties questioning whether they acted in good faith, avoided conflicts of interest, and acted within the company's powers. Leaders could also face legal action if it's suspected they breached fiduciary duties, traded recklessly, or provided personal guarantees for the company's obligations.

Saving your career: typical D&O Insurance claim examples

Knowing the risks you can face as a business leader is the first step. The second is understanding how Directors and Officers Insurance can protect you. Here are a few examples of how this can play out.

Example 1: the identity theft incident

Thabo is a director of a small tech startup on the cusp of entering into a massive deal with an international company. One day, someone accuses him of breaching a contract related to a deal. The person demands compensation by filing a claim. Thabo knows he never signed the contract being referred to, although he admits the signature on it looks like his. He also knows that the bad press could compromise his upcoming business deal. Directors Insurance covers the costs of hiring a law firm to investigate the issue and prove that the signature was forged. However, if it were discovered that Thabo had engaged in criminal activity, the legal costs would not have been covered.

Example 2: the case of shareholder action

Yolandi is the chief financial officer of a local retail company experiencing financial challenges. Shareholders are concerned she’s making poor choices for the business and file a shareholder derivative action against her, claiming she must be held liable for the business’s losses. Directors and Officers Insurance covers the costs of legal assistance for Yolandi, helping her prove that the business is experiencing decreased revenue because a new multinational retailer is offering customers low prices that a South African retailer can’t compete with.

It's worth noting that if it were found that Yolandi was responsible for the company’s financial challenges, her legal costs wouldn’t have been covered and she would have needed to rely on cover from her own Professional Indemnity Insurance.

Example 3: the PR crisis

Greg is the managing director of a car parts manufacturer. International supply chain issues have delayed the company's production of several parts, resulting in a car manufacturer not getting parts on time. The car manufacturer publicly criticises Greg, and a newspaper reports their claims that the late deliverables were due to Greg’s poor planning. The bad press attracts widespread attention, harming Greg’s reputation.

Directors and Officers Liability Insurance covers the cost of hiring a public relations firm for crisis communication and reputation management. The public relations campaign corrects the misconception that Greg is an incompetent company leader, protecting his reputation.

Get a Directors and Officers Insurance quote

The challenges that come with stepping into a demanding director’s or officer’s role needn’t derail your career or negatively impact the business you’re growing. Move closer to protecting your leadership position and your company’s success by getting a Directors and Officers Insurance quote from Budget Insurance today.